UPDATE 2-Chemring, Carlyle get more time to agree on deal

October 12, 2012|Reuters

* "Put up or shut up" deadline extended to Nov. 9

* Chemring profit warning contributed to delay - source

By Abhishek Takle and Anjuli Davies

Oct 12 (Reuters) - U.S. private equity company Carlyle Group has been granted more time by the UK Takeover Panel tohammer out a deal to buy Chemring Group Plc, which makesdefence equipment such as flares and explosive device detectors.

Carlyle now has until Nov. 9 to either bid for Chemring orwalk away. This is the second time that Carlyle has been grantedan extension after having secured an extension in September.

A counter bid from an industry buyer was unlikely and negotiations were likely centred on price, said EdisonInvestment Research analyst Roger Johnston.

He said a price around 400 pence per share, a premium of 19percent to Thursday's closing price, would be enough to clinchthe deal. That would value the company at 773 million pounds($1.2 billion).

"Carlyle will feel under no pressure to bid high whileChemring management will not want to go out with a whimper sothis will be a finely balanced negotiation," Johnston said.

In the midst of negotiations, Chemring issued a profitwarning, citing errors in a new resource planning system at aunit in Florida and a delay in starting production of a systemthat helps troops breach obstacles like minefields.

A person familiar with the matter said the profit warninghad delayed the process as Carlyle considered the new numbersbut he added that it would be pointless extending the deadlineif the companies didn't think a deal could be reached.

Along with its peers, Chemring faces lower defence spendingin the United States and Europe as governments struggle to reinin budget deficits.

Defence industry deals can be fraught, as shown by thecollapsed talks between industry giants BAE Systems Plc and Airbus parent company EADS this week.

But an analyst said the same level of complication was notevident in the proposed sale of Chemring.

"It is unclear why completing this deal is taking so long,"Oriel Securities analyst Guy Brown said in a note. "However, theextension indicates that management and the board are keen tocomplete this deal."

Chemring revealed on Aug. 17 that it had received a highlypreliminary expression of interest from Carlyle. Carlyleinitially had until Sept. 14 to make a bid for Chemring or pullout but that deadline was then extended to Friday.

"It's a good thing that they're still talking thereforethere's still potentially a deal on the table and it's a badthing because it's taking such a long time to sort it out," saidPaul Mumford, senior investment manager at Cavendish AssetManagement, which owns 2.3 million pounds of Chemring stock.

"We just have to be patient again, unfortunately. I don'tthink I would be charging in to buy any shares at the moment buton the other hand I'd just sit there and await developments."

Chemring shares were trading flat at 336.5 pence at 0904 GMTon the London Stock Exchange on Friday.

The shares, which spiked on Aug. 17 on investor enthusiasmover a deal, gave up most of those gains after the profitwarning raised fears that Carlyle might walk away.